If it comes to it later (kids have moved out etc.) I could move in to this property I guess.
I know the rental market is showing good returns at the moment but was wondering if an appartment or a house easier to rent (I'm thinking of 2 bed property)?
This is not relevant to some one starting a businessThe only reason that you are in a strong financial position today is because you did not invest in property so far. When it comes to investing, property is a high risk investment with a very average return when compared to other alternatives. Look at the facts and not the Irish sentiment that property is a good investment...
Before you make this move be aware that by investing in property Irish people, break every rule in the book:
- A low risk portfolio should have no more than about 6% in property! No we'll go for 100%
- Do not borrow to invest, No we'll borrow 100% if we can
Would you advise a business person to keep away from opening a shop because everything would be in one location- Diversify your holdings to reduce risk, no we'll concentrate everything in one location and in a single property in that location
- invest in liquid assets for an easy exit strategy, no we'll invest in something that will be really hard to dispose off
- and on we go....
Anyone who thinks they are making a wise financial decision when they buy a house are only fooling themselves - they are actually entering into a very risky investment where they are ignoring all the best advice going.
Most of my Swiss neighbors and colleagues consider buying a house to be akin to financial recklessness and boy have we proved them right!
The other thing to keep in mind is that most money lost during a bubble is not lost when the bubble burst, but in the aftermath, when "the smart people" try to get in on the ground floor for the next ride...
The other thing to keep in mind is your age - you've got about 10 or 12 years in which you can be fully invested, after that you need to start reducing risk big time to safe guard your assets for retirement, that means government bonds, AAA corporate bonds and blue chips and a house does not even fall into that category!
This is a really excellent thread.
Is a buy to let property an investment or a business?
If it's a business should the assessment be different?
Let's see if it is good business.
The big negative is that the return on capital employed is likely to be less than a passive investment in equities
The best measure of the success of any business is the ROCE. Historically, it has been lower than the return on equities. If you factor in the time input of the landlord, the ROCE could well be negative.
If you view investing in equities as a business, it is less risky, less time consuming and the ROCE is likely to be higher. So it seems to trump property as a business.
However, the tax treatment is more favourable than investing in shares
The tax treatment is more favourable than investing in shares. 75% of the interest on any money borrowed to invest is allowable for tax purposes. There is no such deduction for borrowing to invest in shares. From time to time, there are tax incentives e.g. if you buy before the end of 2014, you will be exempt from CGT if you keep the property for 7 years.
Most of the other factors suggest that residential property investment is not a good business for most people
It requires a fair amount of skill which is often underestimated by the business person. They usually have made money on property by buying the family home and so they feel that they are experts. In practice, they have little skill in buying and selling property, having done it only once or twice in the past. They lack the skills in vetting tenants and dealing with them when things go wrong. Property maintenance skills are also required.
It is very time consuming. The property must be maintained. Tenants must be chased for rents. Bills must be paid.
There is excessive regulation - e.g. the PRTB which protects tenants, and while it protects landlords in theory, in practice it can't enforce that protection.
It's a risky business because you will be depending on very few assets and often just one asset.
It is very risky as a business because you will usually be depending on just one customer i.e. your tenant. If they stop paying, then your business will be loss making.
It's capital intensive. You probably need around €200k to start. You can start for less, but fixed costs such as PRTB make up a higher proportion of low rentals.
You can borrow to get involved, but that makes the business very risky. If your rental income stops, you won't be able to make your repayments and are at risk of losing your entire investment.
Some skill is required and it is very dangerous to fail to recognise this. However it is hardly rocket science. You need to understand what the net rental yield will be. The buying is crucial, get that wrong and you are in trouble. Vetting tenants etc. well this is something you can learn on the job. Any mistake is not too serious.
Maybe we can come back to the issue of borrowing
I am assuming the following:
2. The property will gain in value over the next 10 years at a rate higher than equity investment
Thanks to all for your input
Kevin
Well - I'm glad that I've generated such interest!
..... Seeing that rental yield is good at the moment,
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